Skip to main content

Author: TNTP LAW

Legal consequences of failing to fulfill the pre-contractual information providing obligation in franchising

Franchise relationships are inherently fraught with potential conflicts and interest clashes between parties. To minimize disputes and protect the interests of each party in a franchise relationship, the law stipulates the obligation to provide information right from the pre-contractual stage (before signing the contract). If any party violates this obligation, the following legal consequences may arise.

1. The violating party will have to compensate for damages

Article 24.2 of Decree 35/2006/ND-CP stipulates that where traders conducting business by mode of franchising commit acts of violation, causing material damage to involved organizations and/or individuals, they must pay compensations therefore according to the provisions of law. Accordingly, violating the obligation to provide information in the pre-contractual stage, if it causes material harm to the interests of the Franchisor, the intended Franchisee, or other related organizations or individuals, the violating party must compensate for damages.

2. The contract may be invalid

According to the provisions of Article 127 and Article 407.1 of the Civil Code 2015, a contract can be invalid if it was established due to deception. Deception in civil transactions is the intentional act of one party or a third party to make the other party misunderstand the subject, nature of the object, or content of the civil transaction, leading to the establishment of that transaction.

Franchising businesses are conducted by the parties through a franchise contract. During the contract negotiation phase, the decision of the Franchisee to sign the contract is mainly based on the information provided by the Franchisor. Therefore, if the Franchisor provides incorrect, incomplete, or inaccurate information causing the Franchisee to misunderstand the subject, nature of the object, or content of the contract and sign the franchise contract, the Franchisee may request the Court to declare the franchise contract invalid due to deception.

3. Other legal measures

Based on Article 16.1 of Decree 35/2006/ND-CP referring to Article 287.1 of the Commercial Law 2005, the Franchisee has the right to unilaterally terminate the contract if the Franchisor violates the obligation “to provide documentation on the franchise system to the Franchisee”. The law stipulates this because the content of the franchise introduction is very important for the prospective Franchisee in deciding whether to join the franchise system of the Franchisor.

Furthermore, according to Vietnamese law, traders involved in franchising that breach the obligation to supply information in franchising, depending on the nature and severity of the violation, may also be subject to administrative penalties (Point c, Clause 1 of Article 24 of Decree 35/2006/ND-CP). Based on Article 75.2 of Decree 98/2020/ND-CP, individuals who fail to provide, provide incomplete, or inaccurate information in franchising businesses may be fined from 3,000,000 to 5,000,000 VND, and organizations committing the above act may be fined from 6,000,000 to 10,000,000 VND.

Above is the content of the article “Legal consequences of failing to fulfill the pre-contractual information providing obligation in franchising” that TNTP presents to readers. We hope the information provided is useful to those interested in this issue.

Sincerely,

TNTP CELEBRATES THE LUNAR NEW YEAR 2024

Dear our precious Clients and Partners,

TNTP would like to dedicate this article to looking back to 2023, a year which filled with challenges and difficulties. The prolonged aftermath of the COVID-19 pandemic and socio-economic crisis have led to economic stagnation and the emergence of numerous disputes.

Throughout this challenging year, TNTP is always grateful and proud to be the trusted choice of many Clients and Partners in providing legal services.

TNTP extends to our clients and partners a couplet from Nguyen Du’s masterpiece, “The Tale of Kieu”:

Sen tàn, cúc lại nở hoa,
sầu dài ngày ngắn, đông đà sang xuân”.

(English translation: “The lotuses wilted, and the mums bloomed; Long hours of melancholy while the day grew shorter, then winter passed and spring arrived”).

This message conveys that life is always in motion and development and eventually, all hardships will go away. Let us all have faith in moving towards the Year of the Wood Dragon 2024, a year of growth and prosperity.

Stepping into the new year, TNTP wishes to be not only a legal companion but also a reliable partner, ready to support our Clients and Partners in overcoming hardships to achieve great success.

TNTP respectfully announces the Lunar New Year 2024 holiday schedule as follows:

• Holiday period: TNTP will be on the Lunar New Year Holiday from February 8, 2024 to February 14, 2024 and will be back to work on February 15, 2024.

• During the holiday, TNTP will continue to provide emergency support as necessary. You may contact us via phone number 0931.798.818 or email at ha.nguyen@tntplaw.com for timely assistance.

Once again, TNTP extends our deepest thanks to our Clients and Partners. We wish you and your loved ones a joyful and warm Lunar New Year holiday.

Happy Lunar New Year, the year of the Wood Dragon 2024!

Sincerely,

 

 

 

 

Methods Businesses Can Apply to Minimize Disputes Arising from Contracts

When businesses wish to collaborate, they hope that the cooperation process will be smooth and free from unnecessary conflicts and disputes. So, what can businesses do to minimize these disputes when disagreements arise during the implementation of agreements? In this article, TNTP will point out some methods that can be applied to reduce disputes arising from contracts.

1. Disputes that may arise in contracts

In a contract, the following types of disputes can arise:

• Disputes regarding the Subject of the Contract: There are cases where the person signing the contract has no actual authority to represent a Party in the contract; Or the Contracting party does not have the capability to sign the contract, resulting in the contract being void.

• Disputes regarding the subject matter of the contract: Describing goods or services to be provided in the contract is crucial. However, in practice, there are still cases where the description of the contract’s subject matter does not match the reality, and the characteristics of goods or services are not specified. This can lead to disputes when the goods or services may not be suitable within the contract.

• Disputes related to contract content: If the content and terms of the contract are not specifically and thoroughly defined, disputes can arise when issues arise during implementation.

• Disputes during contract performance: During the performance of the contract, due to various reasons, parties may fail to perform or not perform as agreed, leading to potential disputes.

2. Minimizing disputes during the contract signing phase

Minimizing disputes can be achieved during the negotiation and contract signing phase. The following methods can be applied:

• Thoroughly research your partners: Conducting thorough research on potential partners can help businesses gather essential information about them and avoid entering into contracts with parties not having authority to enter into a contract or lacking the capacity to fulfill contract requirements or with companies that exist only on paper. Businesses should investigate tax identification numbers, business registration details, operational status, financial reports (if available), legal representatives, etc.

• Specify the detailed provision of contract terms: To prevent difficulties that may occur during contract performance, parties should draft the contract with the most detailed provisions possible regarding matters directly related to contract performance. This helps guide both parties in fulfilling their mutual agreements. Specific provisions may vary depending on the nature of the contract.

• Meticulous contract review: Thoroughly reviewing the contract draft is a necessary step to minimize errors in the contract preparation process and identify contract terms that may lead to a dispute. Terms related to the interests of the parties are often the ones with the highest dispute risks, as there may be cases where the contract imposes many obligations but grants very few rights, or vice versa. Therefore, reviewers should focus on such terms.

• Resolving any remaining issues: The fact that the parties have different desires and expectations can lead to differences in their viewpoints regarding rights and obligations in the contract. For such matters, direct negotiation with the partner based on a cooperative spirit is necessary, but there still need to be limits to protect one’s own rights and interests.

3. Minimizing risks during the contract implementation phase

• Properly perform the Agreed Terms: To avoid conflicts and disputes arising from contract execution, all parties must conscientiously adhere to the terms and conditions stipulated in the contract, ensuring they are performed precisely and completely as agreed upon.

• Utilizing Alternative Dispute Resolution Methods: In the event of issues arising during contract implementation, it is important to promptly notify the other party and actively cooperate to resolve the matter. Parties should use methods such as negotiation and mediation to address differences amicably.

Above is the article “Methods Businesses Can Apply to Minimize Disputes Arising from Contracts” that TNTP sends to readers. If you have any questions or need further clarification, please contact TNTP for timely assistance.

Sincerely,

Common commercial practices in international sale of goods contracts

In international sales of goods contracts, commercial practices play an important role in regulating and supporting international goods sales transactions to be performed properly. In this article, TNTP will present which practices and customs are commonly used in international goods sales contracts.

I. Definition of commercial practices

The Commercial Law 2005 provides definitions for commercial customs and commercial practices. According to Clause 3, Article 3, commercial customs in commercial activities are understood as clear and repeatedly established rules of conduct over an extended period among the parties, which the parties implicitly recognize to determine the rights and obligations of the parties in commercial contracts. Clause 4 of Article 3 defines commercial practices as a set of commercial practices and customs widely recognized in commercial activities in a region, area, or commercial sector, acknowledged and regularly applied by multiple entities in commercial relationships with clear content for the parties to determine their rights and obligations in commercial transactions.

Commercial practices are usually categorized into the following groups:

Common Commercial Practices: These are commercial customs recognized and applied in many countries and regions worldwide. For example, Incoterms (International Commercial Terms) compiled and drafted by the International Chamber of Commerce (ICC) are widely recognized and applied in international trade transactions.

Regional Commercial Practices: These are international commercial customs applied in each country, region, or port. For instance, in the United States, the FOB (Free on Board) delivery terms are commonly used. The FOB terms in the United States are outlined in the “Revised American Foreign Trade Definitions of 1941,” which specifies six types of FOB with certain differences in rights and obligations for the seller and buyer compared to the FOB terms in Incoterms 2000.

II. Common commercial practices in international sale of goods contracts

When entering into international sales contracts for goods, due to the international nature of the contract, parties may encounter barriers related to language, culture, legal systems, etc. This can lead to situations where the same clause is interpreted differently by the parties, thereby posing a risk of disputes. Commercial pratices, especially widely recognized ones, play a crucial role in clearly defining consistent rights and obligations for the parties, thus reducing some of the barriers mentioned. In practical international sales contract negotiations, some typical commercial customs include:

• Incoterms: Incoterms, or International Commercial Terms, are a set of international trade rules established by the International Chamber of Commerce (ICC) and used in international sales contracts. Incoterms provide a set of common rules and general guidelines to facilitate international trade. Essentially, they offer a common language that traders can use to set terms for their transactions. Incoterms govern various aspects, including the responsibilities of the buyer and seller, delivery of goods, risk transfer, transportation responsibilities, and insurance obligations. While Incoterms are commonly used for sea and inland waterway transport, they can also be applied to all modes of transportation. A unique feature of Incoterms is that different versions of Incoterms are valid independently of each other. That means that parties can use the 2000 version of Incoterms for transactions in 2023, provided they explicitly specify this in their contract.

• Uniform Customs and Practice for Documentary Credits (UCP): UCP is a set of rules issued by the International Chamber of Commerce (ICC) that provides guidelines for the uniform practice of documentary credits applied by financial institutions issuing Letters of Credit—a financial instrument that facilitates trade financing. Many banks and lenders must adhere to these rules to standardize international trade, reduce risks in the exchange of goods and services, and manage international trade. These rules are applied to international payment transactions in many countries worldwide.

• Institution Cargo Clauses: It is a part of the initial marine insurance developed by the International Chamber of Commerce (ICC), an agency that manages global businesses. These clauses were first introduced in 1982, and they have been modified over time to accommodate changes in global business practices, risk levels, and threats. Insurance clauses are categorized into levels A, B, and C, each with different coverage, value, and insured cargo types to suit the needs of parties requiring insurance for goods during transportation.

Above is the article “Common commercial practices in international sale of goods contracts” that TNTP sends to readers. If have any questions or need further clarification, feel free to contact TNTP for timely assistance.

Sincerely.

Skills and expertise in debt recovery

Debt recovery is a crucial activity that helps businesses maintain stable financial operations. However, due to a lack of necessary skills and expertise, many companies struggle to conduct debt recovery professionally. In the following article, TNTP’s lawyer will offer a perspective and provide businesses with effective skills and expertise in debt recovery.

1. Negotiation Skills

Negotiation involves influencing the debtor through behavior and speech in order to reach a beneficial agreement for the business. It comprises various skills such as communication, bargaining, and persuasion. Negotiation skills are essential for debt recovery employees to learn and develop during the resolution process.

A debt recovery employee proficient in negotiation skills will easily handle debts, as they understand the debtor’s problems and can offer choices and solutions that ensure the interests of both debtor and creditor. This ensures successful and timely debt recovery, thereby avoiding additional time and costs.

However, this is a challenging skill and only effective when the debtor still has financial capacity and is willing to pay. If the debtor is uncooperative or unable to pay, the business should implement other necessary measures to ensure debt recovery.

2. Persistence in Pursuing the Case

Successful debt recovery also requires persistence, especially for high-value debts and uncooperative or financially incapable debtors. This task can be difficult and time-consuming

Therefore, persistence and determination in pursuing the case are essential skills. This involves closely monitoring activities and continuously contacting to understand the debtor’s situation, attitude, and payment ability; or relentlessly seeking new solutions when previous ones become unfeasible.

While persistence is crucial for effective debt recovery, it should have limits to ensure greater benefits than the costs incurred, as not all debts are recoverable, and continued efforts may lead to waste of time and money for the business and the person conducting the recovery.

3. Legal Knowledge

This is a mandatory aspect that all social activities must adhere to, not just debt recovery. However, many entities conducting debt recovery have used illegal methods, even constituting criminal offenses, making the process unseemly and legally risky.

Therefore, to effectively conduct debt recovery and avoid legal risks, employees must have legal knowledge and thoroughly understand the regulations related to anticipated debt recovery activities to ensure compliance with the law.

4. Honesty

Debt recovery aims to protect the business’s interests, requiring the person conducting it to ensure honesty and steadfastness in protecting the business’s interests regarding the debt. If the employee is dishonest, inaccurately reports activities, or covers for the debtor, causing difficulties in recovery or making the business believe the debt is irrecoverable, it results in significant losses. Once trust is lost, it cannot be regained, making honesty in all activities critically important for a debt recovery employee.

This article by a TNTP lawyer discusses ” Skills and expertise in debt recovery” We hope this article brings value to the activities of businesses.

Sincerely,

Debt recovery experiences for newly established businesses

A newly established business will face numerous concerns such as maintaining financial stability, establishing its brand and reputation, creating competitive value, and most importantly, being profitable during its operations. However, one aspect that new businesses also need to focus on is ensuring effective Debt recovery during their operations to maintain business stability. In the following article, a lawyer from TNTP will share opinions and insights on debt recovery experiences for newly established businesses.

1. Why is Debt Recovery Important for New Businesses?

Typically, new businesses concentrate entirely on the goal of seeking profit. While this is an obvious objective, they also need to control their debts and prepare debt recovery measures to avoid incurring irrecoverable debts beyond their control.
Often, the initial success of businesses in signing contracts with clients can lead to complacency and a lack of preparation for situations where clients fail to pay on time. When a business is new and has few clients, there is a tendency to retain existing clients and avoid demanding payment of debts to prevent displeasing them, which could affect future revenue. However, these loyal clients can potentially become bad debtors with large unpaid debts, disrupting the company’s finances and even severely affecting its operations. Without preparation for debt recovery activities, businesses can become passive and struggle to recover debts. For new businesses without strong financial capabilities, controlling debts is as crucial as seeking profit.

2. Considerations for New Businesses in Debt Recovery

a) Classify Debts Early On

Classifying debts is the first step a business should take before implementing debt recovery measures, as it helps manage debts more easily than lumping all debts into one category. Without classifying debts, planning and executing debt recovery tasks become inefficient since each debt requires a different approach, methods, and timelines.
Debt classification can be based on several factors, with the most important being the value of the debt and the time it was incurred, which greatly determine how easy or difficult it is to recover a debt. Early debt classification helps businesses monitor debts from their inception, allowing them to be proactive and ready for any necessary debt recovery stage to ensure effective recovery.

b) Focus on Early Debt Recovery, Even for Small Debts

Businesses often overlook small debts to avoid displeasing clients. However, based on TNTP’s experience, large irrecoverable debts often arise from failing to recover when debts are small and more manageable. Early debt recovery, even for small amounts, is also a way to test the debtor’s willingness to pay, as a debtor unable to settle small and manageable debts is unlikely to pay when the debt value increases.

Starting debt recovery early also helps businesses minimize the risk of irrecoverable bad debts. According to TNTP’s debt recovery experience, a debt is most likely recoverable within 12 months of its occurrence. Therefore, within this period, businesses should start implementing debt recovery measures to ensure effective recovery and prevent the risk of debts becoming irrecoverable.

c) Use Only Legal Debt Recovery Methods

Currently, many services “advertise” high success rates in debt recovery within a short period by applying methods that can pressure debtors to pay. Some debt recovery companies may use illegal methods, such as editing and posting threatening debt recovery videos on social media, exerting psychological and emotional pressure on debtors. Even worse, some debt collectors use physical force and gangsters to intimidate or threaten debtors. These are illegal acts, and those using such methods can be criminally charged under the Criminal Code.

Therefore, when implementing debt recovery measures, businesses should only conduct activities permitted by law to avoid legal risks that could affect both the business operations and the business owner themselves.

Above is an article by a TNTP lawyer on the topic: “Debt Recovery Experience for Newly Established Businesses.” We hope this article brings value to our readers.

Best regard.

What should be included in a debt management policy for businesses?

To effectively control debt and conduct efficient debt recovery operations, businesses should consider creating a debt management policy. What basic contents should a debt management policy include? In this article, a lawyer from TNTP will provide insights on the essential contents of a debt management policy in businesses.

1. What is a Debt Management Policy?

A policy is a document that sets out the regime, operational activities, task allocation, and the rights and obligations of the subjects governed by the policy. This document is established by agencies, organizations, or businesses to regulate corresponding activities within their internal operations.

A debt management policy may include specific contents such as: managing and classifying debts and debtors; debt resolution and processing procedures; responsibilities of relevant individuals; principles in debt recovery activities, etc. All debt recovery activities of an agency, organization, or business must comply with the content of the debt management policy issued by them to ensure unity and effectiveness in debt recovery.

2. Main Contents of a Debt Management Policy

a) Managing and Classifying Debts and Debtors

This is one of the main contents that a debt management policy must include. The procedures for resolving and processing debts involve a series of steps to resolve the debt according to a timeline, corresponding to the business’s debt. Specifically, all debts and debtors must be divided into specific groups for corresponding debt recovery measures, such as: Smaller debts with newly incurred debt periods will have lower recovery priority than larger debts with extended periods; Debtors are also classified based on their cooperative attitude, financial capacity, and assets.

Managing and classifying debts and debtors helps businesses to quickly and effectively implement debt recovery strategies for each debt and debtor. Management and classification are the first tasks that a business must perform when any debt arises to ensure tracking and debt processing when necessary, and to avoid neglecting debts that can affect the company’s cash flow.

b) Debt Processing Procedure

After classifying debts and debtors into corresponding groups, the next necessity is what businesses need to do for debt recovery. Accordingly, the debt processing procedure will specify these issues.

There are many ways to handle a debt, from negotiating via phone, email, letters to more complex measures like using debt collection services; or filing lawsuits at dispute resolution agencies, etc. Each method has its advantages, disadvantages, duration, and costs, and must be conducted under certain conditions for maximum efficiency.

Typically, the first debt recovery actions a business should take are contacting and notifying the debtor of the obligation to pay when the debt is due, with the frequency of contact increasing over time depending on the value of the debt and the debtor’s attitude.

Using the services of a law firm will be implemented when the business does not have the capacity,
In many necessary cases, if the debtor initially does not cooperate and the debt value is large enough, the business can absolutely initiate litigation immediately to ensure effective debt recovery.

c) Debt Recovery Principles

Like other business activities, debt recovery will include mandatory principles to ensure effective debt recovery and prevent potential risks. One of the most important principles is legal compliance and adherence to the business’s internal regulations, as all debt recovery activities, while potentially beneficial to the business, can become risks or even cause the business to cease operations if they violate the law and business regulations. Therefore, businesses need to pay attention to establish appropriate debt recovery principles that both ensure the interests of the business and comply with legal regulations.

While there are still many aspects of debt recovery operations to consider, within the scope of this article, TNTP only presents the main and important contents to provide businesses with necessary information about the need for a debt management policy. We hope this article is useful for the operations of businesses.

Sincerely,

Reasons why businesses need debt management policy

Debt recovery activities are as crucial for businesses as their other business operations. To manage and handle debts effectively, businesses and organizations need to have an efficient debt management policy. In the following article, a lawyer from TNTP will discuss the reasons why businesses need a debt management policy.

1. Helps Businesses Effectively Classify Debts

For businesses to manage debts effectively, the first thing is to classify the debts, which is the first and foremost content of every debt management policy. Debt classification can be based on various criteria such as the value of the debt, duration of the debt, the relationship level between the business and the partner, or the ease or difficulty of debt recovery.

Debt classification serves two main purposes for the business: (i) to determine whether the possibility of debt recovery is high or low, and (ii) to help identify the necessary debt recovery measures for each debt. Therefore, a debt management policy will help businesses classify debts effectively.

2. Creates an Effective Debt Recovery Process

An important reason for businesses to have a debt management policy is to establish a convenient and unified internal procedure for debt recovery, enabling businesses to handle debts quickly, effectively, and in a synchronized manner with all the business’s debts.

A debt recovery process needs to be applied to all debts, and the steps involved must be consistent with a specific order, such as the stages of debt recovery from low to high: Reminder – Negotiation – Payment Request – Litigation. Thus, a debt management policy will prescribe that every business debt must be processed in the above order until the debt is fully recovered or the recovery process must be stopped due to ineffectiveness.

Therefore, a debt management policy helps businesses establish an effective debt recovery process and simultaneously enhances the business’s debt recovery experience.

3. Defines Functions and Tasks of Specialized Departments in Debt Recovery

Besides the above benefits, a debt management policy helps businesses maximize their debt recovery capabilities. The policy will assign functions to each department, division, and position in the business to serve specific debt recovery tasks. This helps the entire business focus its capabilities to support debt recovery activities, even for departments or positions not entirely dedicated to debt recovery functions, contributing to the overall debt recovery efficiency.

For example: (i) The sales department, as the customer and partner interface, will coordinate with the administrative and accounting departments to classify debts; (ii) After classification, the accounting department will inventory the debt value to discuss with the sales or debt recovery department to determine the exact amount the debt recovery department requires the debtor to pay. (iii) In cases of reconciliation, verifying debts with the debtor, the debt recovery department will also coordinate with the accounting department to prepare these documents and send them to the responsible directors for signing or stamping (if necessary); (iv) In cases where negotiation with the debtor is not possible, the debt recovery department will also coordinate with the administrative and accounting departments to prepare a list of lawsuit files, and some documents will also require signatures from authorized persons of the business to ensure legal validity.

Thus, a debt management policy will help the business define and assign functions and tasks for each stage and task of debt recovery to coordinate smoothly between departments within the business, maximizing debt recovery capabilities.

4. Establishes Debt Recovery Principles Compliant with Legal Regulations and in Line with Business Policies and Bylaws

Any business activity must comply with the law, and debt recovery is no exception. Many debt recovery activities may bring value to the business, but if they are not legally compliant, they can lead to potential legal risks, significantly affecting the reputation and business operations of the business itself.

Therefore, the debt recovery policy will set specific conditions so that debt recovery activities are in line with the business’s characteristics, internal rules, and bylaws, without affecting other business activities or causing difficulties, overlapping rights, and obligations of positions and roles within the business.

This is very important for businesses to ensure effective debt recovery while ensuring that business operations and other activities compatible with the business’s functions operate smoothly and are not interrupted when the business implements debt recovery.

Above is the TNTP lawyer’s analysis on the topic: “Reasons Why Businesses Need a Debt Management Policy”. We hope this article brings value to the activities of businesses.

Sincerely,

Is the business owner responsible for the company’s debts?

In business activities among enterprises, when the transaction parties are businesses, many people often think that the obligation to pay off debts is solely the responsibility of the company and does not extend to the personal liability of those managing the company. However, in reality, depending on the specific case, the business owner may have to pay the debt with their funds. In the following article, lawyer from TNTP will share their view on the question: “Is the business owner responsible for the company’s debts?”

1. Debts Associated with the Business Entity

According to the Commercial Law of 2005, when parties enter into a contract in commercial activities, the seller/service provider must deliver goods, transfer ownership of goods, provide services to the buyer/service user, and receive payment; the buyer/service user must pay for the goods/services, receive the goods, and obtain ownership of the goods as agreed, or after completion of the service use. Accordingly, the obligation to pay off the debt falls on the buyer/service user corresponding to the value of goods or services in the prior contract/agreement. Therefore, if a business fails to fulfill its obligation to pay for these goods and services on time as committed, these will be debts associated with the business entity.
Besides debts arising from purchasing goods and using services, another type of debt associated with the business entity includes loans from financial institutions or other individuals and organizations. These debts often arise from loan contracts to serve certain activities of the business. In this case, the entity responsible for repayment is the business, confirmed by its representative or authorized person.

2. Responsibility for Repaying the Company’s Debt?

a) Cases Where the Business Owner is Infinitely Liable for the Company’s Debts

• According to Article 177 of the Enterprise Law 2020, individual members of a partnership are liable with all their assets for the obligations of the partnership, including the obligation to pay off company debts.
• Furthermore, according to Article 188 of the Enterprise Law 2020, a sole proprietorship is also a type of business owned by an individual who is personally liable with all their assets for all activities of the business, including the obligation to pay off company debts.

Thus, according to legal regulations, there are two types of businesses – Partnership Companies and Sole Proprietorships – where the business owner will have to bear unlimited liability for the obligations to pay off the company’s debts. This is why these types of businesses are often less chosen by investors to establish a company in business activities.

b) Cases Where the Business Owner is Limitedly Liable for Debts.

• As per the regulations of the Enterprise Law, other types of businesses including Single Member Limited Liability Companies, Limited Liability Companies with two or more members, and Joint Stock Companies are all stipulated to be liable for the company’s debts and other asset obligations within the limit of their contributed capital or charter capital.
• In these types of businesses, if the company incurs debts in its business activities, the business owner will only have limited liability, specifically within the extent of their contributed capital or charter capital. In other words, in these cases, the debts of the company will only be paid off with the company’s assets or revenue from business activities, and the business owner will not have to be personally responsible for paying these debts with their assets.

This is the main reason why Limited Liability Companies and Joint Stock Companies are chosen by investors to participate in business activities due to the low liability involved. However, it is these types of companies that often generate many bad debts that are difficult to recover because when the company is no longer able to pay, there is no way for creditors to recover the debt since the business owner and those who contribute capital will not be personally liable for the company’s debts.

This article by TNTP’s lawyer covers the topic: “Is the business owner responsible for the company’s debts?”. We hope this article brings value to the operations of businesses.

Sincerely,

Can the right to debt collection be assigned or not?

The right to debt collection is an arising right between the debtor and the creditor in civil relations, in which the creditor has the right to demand payment from the debtor, and conversely, the debtor must repay the debt to the creditor. However, in some cases, the creditor can transfer their debt recovery rights to a third party to carry out debt collection tasks on their behalf, which may result in changes in the legal subjects within the civil relationship as well as legal consequences. In this article, TNTP’s lawyers will analyze the cases in which debt collection rights can be transferred and the legal consequences when parties transfer these rights.

1. Debt Collection Rights as Regulated by Law

Under the provisions of the 2015 Civil Code, all civil relations consist of two groups of subjects: the entitled party and the obligated party. The entitled party is the party entitled to a value or material benefit from the obligated party, or they may require the obligated party to perform a certain task for them as agreed upon by the parties within the scope allowed by the law. The obligated party is the party that must deliver, provide a value or material benefit to the entitled party, or perform a specific task for the entitled party according to the agreement of the parties within the scope allowed by the law.

Therefore, in the field of debt collection, the Creditor is the entitled party who has the right to demand the Debtor to pay the debt according to the agreement of the parties, or the right to recover the debt, and the Debtor is the obligated party who must pay this debt to the Creditor. Thus, the right to recover a debt is a right to demand attached to the status of the Creditor in civil relations and is regulated by the Civil Code.

2. Transfer of Debt Collection Rights

• Article 365 of the 2015 Civil Code regulates the transfer of the right to claim as follows:

Article 365. Transfer of the right to claim

1. The entitled party who is entitled to perform an obligation may transfer that right to a successor by agreement, except in the following cases: a) The right to claim for maintenance, the right to claim compensation for damage due to infringement of life, health, honor, dignity, or reputation; b) The entitled party and the obligated party have agreed or the law has provisions on the prohibition of transferring the right to claim.

1. When the entitled party transfers the right to claim to a successor, the successor becomes the entitled party. The transfer of the right to claim does not require the consent of the obligated party. The entitled party transferring the right to claim must notify the obligated party in writing of the transfer, except in other agreements. If the transferor does not notify the obligated party of the transfer and this incurs costs for the obligated party, the transferor must bear these costs.

According to the above regulations, it can be seen that when the entitled party, in this case, the Creditor, transfers their right to claim to a third party (referred to as the successor), the successor will become the entitled party. Therefore, the legal subject of the entitled party is transferred along with corresponding rights and obligations.

However, the transfer of the right to claim cannot be carried out in two cases: (i) The right to claim for maintenance, the right to claim compensation for damage due to infringement of life, health, honor, dignity, or reputation; and (ii) The entitled party and the obligated party have agreed or the law has provisions prohibiting the transfer of the right to claim. In cases not falling into these two exceptions, the transfer of debt collection rights is recognized by law.

Furthermore, according to the regulations, the transfer of the right to claim does not require the consent of the obligated party (Debtor), but the transferor must notify the obligated party in writing of the transfer unless there is another agreement.

Therefore, if the Creditor transfers their debt recovery rights to a Successor, the transfer can be recognized under the law, provided that the transfer complies with the legal requirements. After completing the transfer of debt recovery rights, the Successor will have the right to take necessary measures to demand that the Debtor fulfill their obligation to repay the debt.

This article, “Can the right to debt collection be assigned or not?” is presented by TNTP. We hope this information is valuable for businesses.

Sincerely,

TNTP & ASSOCIATES INTERNATIONAL LAW FIRM

  • Office in Ho Chi Minh City:
    Room no. 1901, 19 th Floor Saigon Trade Center Tower, No. 37 Ton Duc Thang Street, Ben Nghe Ward, District 1, Ho Chi Minh City
  • Office in Hanoi City:
    No. 2, Alley 308 Tay Son str, Thinh Quang Ward, Dong Da Dist, Hanoi City
  • Email: ha.nguyen@tntplaw.com


    The copyright belongs to: TNTP & Associates International Law Firm